The One Catalyst That May Be Lifting This Stock Market

 | Jul 10, 2018 | 12:34 PM EDT
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Over the last week, the markets have seen enough improvement on both a chart and data basis to alter our near-term outlook to "neutral/positive" from "neutral/negative." Several resistance levels and short-term downtrends on the charts were violated while the data is largely neutral in nature.

On the charts, virtually all of the short-term downtrends on the indices were violated to the upside along with several resistance levels being broken. Some 50-day moving averages were also surpassed. The net result is that all the indices are in short-term uptrends except the Dow Jones Transports (below), which remains in a neutral trend.

Source: Worden

Most of the stochastic levels are neutral with the exception of the Value Line Arithmetic Index, which is slightly overbought. We would also note the S&P MidCap 400 Index (see below) and Value Line index made new closing highs.

Meanwhile, all of the cumulative advance/decline lines for the indices turned positive and back above their 50 DMAs. On the other hand, the VIX has drifted back into the 12.00 range after having spiked to 20, suggesting we may see some volatility re-enter the markets after the recent gains.

Source: Worden

Data

The data is largely neutral, including all of the McClellan 1-day Overbought/Oversold Oscillators (All Exchange:+28.48/53.15 NYSE:+42.48/+63.61 NASDAQ:+19.9/+46.27). The OEX Put/Call Ratio (1.06) and OpenInsider Buy/Sell Ratio (53.9) are neutral as is the detrended Rydex Ratio (contrary indicator) dropping significantly to 0.68 from its prior bearish levels.

The AAII Bear/Bull Ratio is dead even at 33.33/33.0 with the only bearish signal coming from the Equity P/C at 0.53.

Valuation

Of notable importance is the sizable increase in consensus forward 12-month earnings estimates for the S&P 500, to $167.41 from $163.57 per share.

That leaves the S&P trading at a forward 12-month P/E multiple of 16.6x versus the "rule of 20" implied fair value at a 17.1x.

We don't know when these estimates were lifted, but they may have been the catalyst for the stock market's recent strength.

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